Week 2 Lecture 2

Employment Income
1. Employment income – Section 4(b)
2. Contract of service and contract for service
3. Difference of employment income and business
income
4. Definition and derivation of employment income –
Section 13(2)
5. Types of employment income – Section 13(1)(a) to (e)
6. Allowable expenses
7. Format of computation of adjusted employment
income

CONTRACT OF SERVICE S4(b)

Definition
Employment means:
a) employment in which the relationship of master
(employer) and servant (employee) exists;
 In a contract of service, where it establishes the legal
relationship of master and servant (or employer and
employee), it is regarded as an employment.
 The master or employer exercises the control to
direct the way a job is to be done. However, the
exercise of control is not conclusive to indicate the
existence of an employment

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 CONTRACT FOR SERVICE S4(a)

Definition
Contract for service involves the case of
one who carries on a business which
includes a profession, vocation, trade, and
every adventure or concern in the nature of
trade.

Differences between employment income

[S4(b)] and business income [S4(a)]
Business Income Employment Income
 More flexible in the expense deduction
 Restricted scope in
expense deduction
 Entitled to claim capital allowance

 Adjusted business loss can be deducted  Capital allowance is not

against aggregate income( all sources) available
to arrive at the total income. Unutilised
adjusted loss from business can be  No employment loss can
carried forward to the subsequent year be deducted against any
of assessment (limited to 7 YAs) and to income
be deducted against aggregate income
(all business sources).  Exemption of income
from short term
 No such exemption for
employment. 4
business income
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 Section 13(2) (a) to (e) to of ITA 1967

Gross employment income shall be deemed to be derived

from Malaysia for any period:

(a) during which the employment is exercised in Malaysia;

(b) of leave attributable to the exercise of the employment

in Malaysia;

(c) during which the employee performs outside Malaysia

duties incidental to the exercise of the employment
in Malaysia;
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Section 13(2) (a) to (e) to of ITA 1967

Gross employment income shall be deemed to be derived
from Malaysia for any period:

(d) during which a person is a director of a company

resident in Malaysia;

(e) during which the employment is exercised aboard

a ship or aircraft used in a business operated by a
person resident in Malaysia.

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 TYPES OF GROSS EMPLOYMENT
INCOME – SECTION 13(1)

(a)
Cash Benefit
& convertible
into cash

(e)
Compensation (b)
For Loss Of Benefit-In-Kind
Employment S13(1)
Types of
Employment
Income

(d) (c)
Unapproved Value of Living
Fund Accommodation
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 Section13(1)(a)

Section 13(1)(a)
• Any wages, salary, remuneration, leave
pay, fee, commission, bonus, gratuity,
perquisite or allowance (in money or
otherwise) in respect of having or
exercising the employment

SECTION 13(1)(a) of ITA 1967

1. Amount received in the ordinary course of employment, which
may or may not, be from the employment, e.g. tips to taxi drivers
or to waiters / waitresses.
Calvertv Wainwright -tips received by taxi driver were
taxable receipt.
Ball v Johnson – cash reward given by employer for
passing examination is not taxable.
2. It must make reference to services rendered in the past, present
or future;
3. Voluntary is not relevant for consideration;
4. Amount accrued from or directly connected to employment;
5. The employee is entitled to the payment.
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 Perquisite / Allowance – S13(1)(a)
(whether in the form of money or otherwise)

 Public Ruling 5/2019 for Assessment of Perquisites

under Section 13(1)(a).

 Perquisite / Allowance can be in the form of money

or capable of being convertible into money would be
treated as gross income under S13(1)(a).
 Share option & share incentive scheme
 Allowances
 Clothing allowance
 Travelling & entertainment allowance
 Gift vouchers
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Perquisite / Allowance – S13(1)(a)

Pecuniary liabilities (Public Ruling 5/2019)

Employer in some instances will pay (inclusive of
reimbursement) the following expenses on behalf of the
employees and it is taxable on the employees under
S13(1)(a) irrespective of whether it was paid by the
employer direct or given to employee to claim as
reimbursement.
 Income tax
 Utilities bills (electricity, water, telephone etc)
 Car charges (insurance, road tax, parking, maintenance)

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 Employer Pays

Allowances Reimbursement

Taxable Employer’s Employee’s

Expense Borne Personal
By Employee Expenses
Non Taxable Taxable

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Income Tax (Exemption) Order 2009

[PU(A) 152/2009]
With effect from YA 2008, the following perquisites
provided by employer to employee are given full tax
exemption:-
(a) Petrol car or petrol allowance or travel allowance
and toll card for official duties up to RM6,000 a
year;
(b) Allowance or fees for parking;
(c) Meal allowance (includes overtime allowance and
outstation / overseas assignment);
(d) Allowance or subsidies for childcare of up to
RM2,400 a year;
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 Income Tax (Exemption) Order 2009
[PU(A) 152/2009]
(e) Telephone and mobile phone, telephone bills,
pager, personal data assistant (PDA) and internet
subscription;
(f) Employer’s own goods provided free of charge or
at discounted value where the value of the
discount does not exceed RM1,000 a year;
(g) Employer’s own services provided free or at a
discount provided such benefits are not
transferable;

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Income Tax (Exemption) Order 2009

[PU(A) 152/2009]
(h) Subsidies on interest on loans totalling up to
RM300,000 for housing, passenger motor vehicles
and education. The exemption be given to existing
and new loans.

The above exemptions are not extended to directors (except for

service director) of controlled companies, sole proprietors
and partnerships.

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 Income Tax (Exemption) Order 2009
[PU(A) 152/2009]
Service director (s2) is a director who:
• Owns less than or 5% of the shares in the company; and
• Acts in a managerial or technical capacity.

Controlled company:
• A controlled company is a business in which another entity
owns a majority of the voting stock. More specifically, the
owner must have at least 50% of the voting power for the
election of directors.

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Section 13(1)(b)-BIK
An amount equal to the value of the use or enjoyment by the employee of any
benefit or amenity (not being a benefit or amenity convertible into money)
provided for the employee by or on behalf of his employer, excluding
• A benefit or amenity consisting of medical or dental treatment; or child
care;
• A benefit or amenity consisting of :
 Leave passage within Malaysia not exceeding 3 times in any calendar
year.
 Leave passage between Malaysia and any place outside Malaysia not
exceeding one passage in any calendar year. The exemption for overseas
leave passage once in a calendar year is restricted to RM3,000
• iii. A benefit or amenity used by the employee solely in connection with
the performance of his duties.

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 Tax Exempt BIK
Public Ruling (PR) 11/2019
1) Dental benefit.
2) Child-care benefit. Child care centres provided by employers to their
employees’ children.
3) Food and drink provided free of charge.
4) Free transportation between pick-up points or home and the place of work (to
and from).
5) Insurance premiums which are obligatory for foreign workers as a
replacement to SOCSO contributions.
6) Group insurance premium to cover workers in the event of an accident.
7) Benefit consisting of –
a) Leave passage in Malaysia of not more than 3 times in one calendar year, or
b) Overseas leave passage of not more than once in any calendar year
limited to a maximum amount of RM3,000. The exemption of this benefit is
only applicable if it is provided to the employee and members of his
immediate family.
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Tax Exempt BIK

Public Ruling (PR) 11/2019
8) Benefits used by the employee solely for purposes of
performing his employment duty.
9) Discounted price for consumable business products of the
employer and discounted price for services provided by the
employer.( exempted up to maximum RM1,000).
10) Benefits and monthly bills for fixed line telephone, mobile
phone, pager, PDA and subscription of broadband.
11) Modern medicine, traditional medicine and maternity.
12) Benefit on free petrol

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 Benefits-in-kind (BIK)
Section 13(1)(b) of ITA 1967
Public Ruling 11/2019
Car and Fuel
BIK Categories

Furniture
Not convertible into money.
No exact monetary value.
Income assessed depends on
cost to employer providing it Others (Mobile Phone,
or refer to BIK Guideline for Gardener, Servant and etc)
concessionary rates.

Non-Specified

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Section 13(1)(b)-BIK

Prescribed Value BIK Table

Annual
Value of
Car
Formula [Cost/Average life span] x 80%
NOTE: PR 11/2019 (superseded PR 2/2004 )provides
an abatement of 20% which is deemed to be the
value of the motorcar at the time when the car is
returned to the employer. 22

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 Motorcar Benefits
(Prescribed Value Method)

Cost Of Car When New Annual Value Of Fuel Per Annum

(RM) BIK (RM) (RM)
Table shows
Up to 50,000 1,200 600 the value of
50,001 - 75,000 2,400 900 the private
75,001 - 100,000 3,600 1,200 use of car and
fuel provided.
100,001 - 150,000 5,000 1,500
150,001 - 200,000 7,000 1,800
200,001 - 250,000 9,000 2,100
250,001 - 350,000 15,000 2,400
350,001 - 500,000 21,250 2,700
500,001 and above 25,000 3,000 23

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Prescribed Value
method

Table shows value of Car without fuel – No value

the private use. for fuel under 13(1)(b).

½ of annual value of car allowed

if car provided > 5 years (but Fuel without car – actual fuel
value of fuel provided remains expense related to private
unchanged)
usage taxed under 13(1)(b)

Apportionment of annual value in

Value of “specific” driver is
event that car is provided < 1 year.
RM600 per month.
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 Furniture and Appliances
- Types Of BIK Annual Value Of BIK

(a) Semi-furnished with furniture in the RM 840

lounge, dining room or bedrooms. (RM 70 per month)

(b) Semi-furnished with furniture as above RM 1,680

and one or more of the following:- air- (RM 140 per month)
conditioners, curtains and carpets.

Fully-furnished with benefits as above RM 3,360

(c)
plus one or more of the following:- (RM 280 per month)
kitchen equipment, crockery, utensils and
appliances.

IRB uses global approach in ascertaining the household furniture benefits-one

or two items omitted will not reduce assessable value. 25

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Other BIKs
Types Of BIK Annual Value Of BIK

(a) Gardener RM3,600

(RM 300 per month)

(b) Domestic servant RM4,800

(RM 400 per month)
RM4,800
(c) Guard
(RM 400 per month)

RM7,200
(d) Driver
(RM 600 per month)

The above value is for each gardener, domestic servant, guard or driver. Time
apportionment is allowed if the enjoyment of the above benefits is less than a
year. 26

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 S 13(1)(a) S 13(1)(b)

Car insurance premium, road tax, parking and

√
car maintenance charges on employees’ car

Credit card facilities

- annual membership fees, private purchases √
of employees
- used exclusively for performing employees’ -
duties
Electricity, water and telephone bills
- under the employees’ name √
- under the employers’ name √
Gardener, driver, domestic servant, guard
- employed by employer √
- employed by employee or reimbursement to √
employee
Goods provided to employees free / discount
price
- house, car (market price – amount paid by √
employee)
- consumables exempt
Income tax on employee but borne by employer √
Membership in recreational clubs
- individual membership (annual + entrance + √
term fees)
- corporate membership (annual fees) √ 27

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Question -Section 13(1)(b)

Leave passages

Ben works in SS Sdn. Bhd.

In Feb 2018, an overseas leave passages was provided to him
costing RM8,000. From Jan 2018 to December 2018, four local
leave passages for him and his wife were provided as follows:

Sibu RM2,000
Kuantan RM1,500
Tioman RM1,000
Pulau Redang RM2,000

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 Question -Section 13(1)(b)
Leave passages
Ben works in SS Sdn. Bhd.
In Feb 2018, an overseas leave passages was provided to him costing RM8,000. From Jan
2018 to December 2018, four local leave passages for him and his wife were provided as
follows:
Sibu RM2,000
Kuantan RM1,500
Tioman RM1,000
Pulau Redang RM2,000

Leave passage – Overseas (RM3,000 exempted)

5,000
Local leave passages
- Sibu Nil
- Kuantan Nil
- Tioman (the lowest) 1,000
- Pulau Redang Nil 29

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Question -Section 13(1)(b)

Motorcars- value assessable
1) A car was provided to Mr. Fam for the whole year. It was bought
by the company 3 years ago at a cost of RM140,000.
Answer:

2) A car was provided to Mr. Fam for the whole year. It was bought
by the company 6 years ago at a cost of RM140,000.
Answer:

3) A car was provided to Mr. Fam from July 2019 to December 2019.
It was bought by the company 6 years ago at a cost of RM140,000.
Answer:
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 Section 13(1)(c)
of ITA 1967

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S13(1)(c) -Value of living accommodation

An amount in respect of the use or enjoyment by the employee of

living accommodation in Malaysia (including living accommodation
in premises provided by employer) provided for the employee by or
on behalf of the employer rent-free or otherwise.

Where a living accommodation is provided, the value of living

accommodation is determined by reference to S32(2)

a) the defined value (rental) of the living accommodation

(unfurnished); or
b) 30% of the employee’s S13(1)(a) income
whichever is the lower.
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 Value of living accommodation – S13(1)(c)

Defined value OR 30% X S13(1)(a)

income

Rental OR Rateable value

Value OR
Economic rent

* Whichever is the lower

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S13(1)(c) -Value of living accommodation

Example
Section Employment Income RM
13(1)(a) Salary (RM10,000 x 12) 120,000
13(1)(b) Furniture (RM70 x 12) 840
13(1)(c) Value of living accommodation
(a) Defined value (RM3,650 x 12) =RM43,800
OR
(b) 30% X RM120,000 = RM36,000
WHICHEVER IS THE LOWER AMOUNT 36,000
Gross Employment Income 156,840

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 S13(1)(c) -Value of living accommodation

Example

Where the living accommodation is provided in a

hotel, hostel or similar premises; any premises on a
plantation or in a forest; or any premises which, are
not subject to public rates.

3% of the employee’s S13(1)(a) income.

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Section 13 (1)(d) – Refund from unapproved

provident fund/scheme

EPF contributions
11% (employee)
13% (employer)
any withdrawal from EPF is tax exempt
amount withdrawn from unapproved provident
fund / retirement scheme is taxable (other than
the individual’s own contributions)

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 Section 13 (1)(e) – Compensation for Loss of
Employment

 If compensation is received due to ill-health : it is

fully exempted

 Where the payment in in relation to a period of

employment with the same employer or with
companies in a group of companies under
common management. The exemption is limited
to RM 10,000 for each completed year of service
(retrenched from 1 July 2008)

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EMPLOYMENT – Allowable Expenses

 Employee receives gross income under S13(1)(a) to (e) is

allowed to deduct revenue expenses that are ‘wholly and
exclusively’ incurred under Section 33 and not prohibited
by Section 39 in the performance of the employee’s
duties.
 ‘Wholly & exclusively’ refers to an expenditure which is
revenue nature and is solely incurred in the production of
employment income.
 ‘Wholly’ refers to quantum of the expenditure i.e. the
sum of money spent
 ‘Exclusively’ refers to the motive or object behind the
expenditure
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 EMPLOYMENT – Allowable Expenses
• Travelling expenses incurred to visit the customer of the
company or discharging the employees' duties would be
deductible. Expenses incurred on travelling from the employee’s
home to office is Not deductible, as such expenses would be for
private and domestic purposes.
• Entertainment expenses (Sec 38A)incurred on discharging the
employee’s duties (i.e. visiting clients, meeting, promotion, road
show & etc). However, the Entertainment expenses is restricted
to Entertainment allowance;
• Professional subscriptions required in that profession (i.e. MIA
for accountants, MIT for tax consultants, etc);
• Club subscription related to the performance of duties; and
• Uniforms (renewal of clothing). 39

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EMPLOYMENT – Non-Allowable Expenses

• Commission paid to employment agencies;

• Travelling expenses from home to the office;
• Self improvement expenses (seminar fees, tuition
fees, attending part-time courses);
• Examination fees;
• Professional subscriptions that a merely
customary or contain personal choice or private;
• Subscription of newspaper.

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 Format of computation
Section 13(1)(a) A
Salary, Bonus, Gratuity, Fees, Entertainment Allowances, etc

Section 13(1)(b) B
Benefit-in-kind
Medical, dental or child care
Car, Fuel, Driver
Household Furnishing
Gardener/Domestic servant
Corporate membership (only annual fee)
Leave passage, local (exemption up to 3 times)
Leave passage, overseas (1 trip up to RM3,000)

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Format of computation (cont.)

Section 13(1)(c) C
Value of assessable accommodation
30% of Section 13(1)(a)
or
Defined value (unfurnished accommodation)
whichever is lower

3% of Section 13(1)(a) (for accommodation provided in hotel)

Section 13(1)(d) D
Refund from unapproved provident fund/scheme

Section 13(1)(e) E
Compensation for loss of employment
____________
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Gross employment income F

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 Format of computation (cont.)
Less: Deductible Expenses
Subscription paid to professional body G
e.g: MIA, MIM - Section 33
Rent paid to employer (restricted to C) - Section 38 H
Entertainment expenses claimed I
( restricted to entertainment allowances received) - Section 38A
______
J
_____
Adjusted Income (employment) / Statutory income (employment) K
=====

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